I apologise if I’ve placed a vision of an old, toothless, prospector dressed in overalls in the front of your mind with the heading, however I think that it’s a very relevant heading for an excellent investment opportunity that’s available at the moment. As the title indicates, Granny Flats represent an excellent investment opportunity.
With the current state of housing affordability; our ageing population; and our ever increasing desire to reside close to our metropolitan centres, the respective State governments have started to loosen up their planning legislations in respect to Granny Flats. They see this as a way to quickly get additional housing supply into areas where there is great demand and where it will take a substantial amount of time and large infrastructure spends to increase supply on the normal planning process. This creates the opportunity for the astute investor.
Granny Flats can provide an excellent return on investment. We are seeing examples where investors are building Granny Flats for anywhere between $80k – $150k depending on the location and the quality of the fittings. They are then renting these properties out from anywhere between $200 – $350 per week. If we do the numbers on say a $150k cost and a $275 per week rental figure, you’ll see that it provides a gross rental return of 9.53%. Increase that rent to $300 pw and the return jumps to 10.4%. Now that’s an excellent return for such a low risk investment strategy. Obviously, every situation will be different and everyone will have different costs depending on where their property is located, but I’m sure you get the idea.
One of the reasons they’re becoming so popular is that they allow us to utilise land that in the past wasn’t available due to the respective planning laws. In many areas, as long as you have a block over 400m2, and can comply with set back and coverage regulations, you should be able to construct.
Granny Flats are becoming popular amongst different classes of investors for a number of reasons. Here are a few of the strategies that we’re seeing being implemented.
- Retirees that are travelling are building on the back of their existing residential properties, moving into the flat and renting out the main house, thus providing them with income to travel with and a place to stay whenever they return.
- Property investors are doing it to increase the overall yield on their investment and often in the process transforming a negative cash flow investment into a positive cash flow investment.
- Owner Occupiers are implementing it to help generate more income to assist with their daily living expenses.
- We’ve seen some First Home owners actually living in the Flat, while they rent out their residential properties and help pay down their mortgage quickly.
- Families are building to provide a residence for their ageing parents, saving a number of expenses in the process. The parents often pay for the flat and help contribute towards the various property expenses.
First step to becoming a Property Developer
The granny flat strategy is an excellent foray for those who would like to consider developing property as a wealth creation strategy for the following reasons:
– Dealing with the councils is relatively easy
– The construction is relatively small
– There is no requirement to have pre-sales
– Funding is easy to obtain
– Tenants are easy to obtain
– Helps create equity for future projects.
If you want to look into this opportunity further, then contact your local council and see what the current policies are. From our experience, the all vary to a degree.
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